Medicare and Medicaid improperly paid out $54.2 billion in fiscal 2009, with the rate of Medicare fee-for-service errors more than doubling over the previous year, White House's budget chief Peter Orszag said.

Orszag, director of the Office of Management and Budget, said in a conference call with reporters that President Barack Obama intends to issue an executive order within the week aimed at stanching the billions of federal dollars lost as a result of the improper payments. The federal health programs are responsible for more than half the government-wide sum of $98 billion, which compares with $72 billion in fiscal 2008.

OMB Controller Danny Werfel, also participating in the call, declined to estimate how much of the figure could be attributed to fraud, saying the government lacks the forensic auditing tools that would be necessary to find out, a situation the administration wants to fix.

CMS is reporting a 2009 fee-for-service error rate of 7.8%, or $24.1 billion, compared with 3.6% in 2008.

Orszag said much of the increase reflects methodological changes in the way errors are counted in Medicare fee-for-service. For example, he said, an illegible signature on a claim or insufficient documentation provided to auditors are now more likely to be classified as errors. The changes came in response to recommendations by HHS' inspector general's office, which found that the rates the CMS had been reporting were lowballing the problem.

A development that Orszag described as “perhaps more troubling” was that the error rate in Medicare Advantage claims jumped to 15.4% from 10.6% with no changes in methodology, resulting in $12 billion in improper payments in fiscal 2009. “This is one of the reasons as part of health reform we feel there are crucial changes necessary to the Medicare Advantage program,” he said.

Obama's new initiative would require each federal agency to establish a Web site that makes it easy for the public to track and report improper payments, and designate a high-level official who would be accountable for reducing the rate. The administration also intends to impose penalties for failure to return the money to the government if it was paid in error.

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